Pakistan’s inflation set to stay under 7% in Feb

February 27, 2026 (MLN): Pakistan’s improving macroeconomic outlook is evident, as inflation is expected to hover between 6% and 7% in February, which supports confidence in sustained growth in FY2026.

Easing inflationary pressures, steady exchange rate conditions, and improving fiscal indicators are reinforcing macroeconomic stability, creating a supportive environment for business activity and private investment.

Growth is to remain on an upward trajectory, backed by a rebound in large-scale manufacturing (LSM), resilient agricultural output, and stronger remittance inflows, although global commodity price volatility and geopolitical uncertainties remain key downside risks, according to the latest Monthly Economic Outlook released by the Government of Pakistan Finance Division.

Pakistan entered the third quarter of FY2026 with markedly improved fundamentals.

The external account has remained manageable, supported by stable remittances, expanding IT exports, and exchange rate stability. Inflation has stayed within target, while monetary easing has lowered borrowing costs, strengthening financing conditions.

High-frequency indicators point to a pickup in output, and fiscal consolidation efforts have yielded both fiscal and primary surpluses. Early retirement of a sizeable portion of public debt has further strengthened debt sustainability, while a Rs. 38bn Ramadan Relief Package has bolstered social protection measures.

Prudent macroeconomic management and structural reforms are laying the groundwork for sustainable growth.

The report highlights improved revenue mobilization, controlled expenditures, and steady progress in debt management as key pillars supporting economic resilience.

On the production front, agriculture remains steady.

Wheat sowing for the Rabi 2025-26 season covered approximately 23.1m acres against a target of 23.8m acres, with production aimed at 29.7m tonnes.

Agricultural inputs have shown encouraging trends, with machinery imports rising 10.5 % during July–January FY2026. Fertilizer offtake also improved, as urea usage climbed 12 % year-on-year during the Rabi season, underpinning a positive crop outlook.

Industrial activity has gained traction. LSM expanded by 4.8% during July–December FY2026, reversing last year’s contraction. Key contributors included automobiles, wearing apparel, and coke and petroleum products.

The automobile sector posted particularly strong growth, with sharp increases in the production of trucks, buses, cars, and two- and three-wheelers. Cement dispatches rose 10.6 % during July–January, driven by robust domestic demand and a surge in exports.

Price dynamics have remained contained. Consumer inflation stood at 5.8 % year-on-year in January 2026, with the July–January average at 5.2 %, lower than last year’s level. While education, health, housing, and non-perishable food items recorded moderate increases, prices of perishable food items declined significantly.

The Sensitive Price Indicator also edged down in late February, reflecting short-term easing in essential commodity prices.

Fiscal performance has strengthened considerably. During July–December FY2026, total revenues grew 9.4 %, while expenditures declined 10.3 %, largely due to reduced markup payments.

The overall fiscal balance posted a surplus of 0.4 % of GDP, compared to a deficit a year earlier. Tax collection by the Federal Board of Revenue rose 10.5 % in July–January, supported by growth in both direct and indirect taxes.

The external sector, while facing a wider trade deficit, remains stable overall.

The current account recorded a modest surplus in January 2026, bringing the cumulative deficit for July–January to manageable levels.

Remittances grew 11.3 % to $23.2bn, with significant inflows from Saudi Arabia and the United Arab Emirates. Net foreign direct investment reached nearly $1bn, led by inflows from China and Hong Kong, particularly in the power and financial services sectors.

Foreign exchange reserves stood at $21.3bn in mid-February, including $16.2bn held by the State Bank of Pakistan.

Monetary indicators suggest anchored inflation expectations. The policy rate was maintained at 10.5 % in late January, while money supply recorded moderate growth.

Credit to the private sector continued, though at a slower pace compared to last year, with fixed investment loans showing healthy demand.

Meanwhile, the equity market rallied strongly, with the benchmark KSE-100 Index reaching an all-time high in January, reflecting renewed investor confidence.

Social sector indicators also showed improvement.

Overseas employment registrations rose 19 % year-on-year in January, while interest-free loan disbursements under the Pakistan Poverty Alleviation Fund continued to expand.

The Benazir Income Support Programme disbursed Rs. 328.7bn during July–December FY2026, reinforcing the government’s commitment to social protection.

Overall, the outlook for FY2026 remains positive, with macroeconomic stability, fiscal prudence, and structural reforms providing a firm foundation for sustained and inclusive economic growth.

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